Week 3: CISG Applicability & Substantive Rules CISG Applicability - If the contracting parties chose CISG as the law to apply to their contract, then CISG should apply. If the contracting parties did not make a choice of law in their contract i.e., the contract is silent on choice of law, then CISG applies if all of the following conditions are satisfied; a) Both parties are merchants. b) They’re based in different countries. c) This is a contract for the sale of goods. d) The goods are not CISG-excluded goods (like planes or ships). e) Both countries where the merchants are based are CISG member states. Scenario: Now suppose that the parties are merchants based in different countries, contracting for the sale of goods that aren’t CISG-excluded goods, and both countries where the merchants are based are CISG member states. However, instead of choosing CISG as the law to apply (as in the 1st situation above), and instead being silent on choice of law (as in the 2nd situation above), the parties chose the laws of one of the 2 CISG member states to apply to the contract. CISG might apply here: under private international law, the parties’ choice of a CISG member country’s law might cause CISG to apply (this would be under subsection (b) of the CISG applicability provision) Exceptions Yet there are exceptions: if the chosen CISG member country made a one-time Article 95 election at the time of its ratification of the CISG convention, then CISG might not apply in this situation. (The authorities are divided about what happens here). Or if the parties made clear that they really wanted the substantive rules of the chosen CISG member country to apply, and not the CISG substantive rules, then CISG won’t apply. Scenario 2: Now suppose that the parties are merchants based in different countries, contracting for the sale of goods that aren’t CISG-excluded goods, but the countries involved are not CISG member states. Here there are 2 different situations: 1. Neither of the countries where the merchants are based is a CISG member state. CISG won’t apply here unless the parties specifically chose CISG (i.e., unless it’s the 1st situation) – there’s otherwise nothing in the CISG applicability provision to make CISG apply. 2. The country where one of the merchants is based is a CISG member state, and the country where the other merchant is based is not a CISG member state. In this situation, several sub-situations exist: a) Sub-situation 1: The parties have chosen the non-CISG member country’s law to apply to the contract. CISG won’t apply here – there’s nothing in the CISG applicability provision to make CISG apply. b) Sub-situation 2: The parties have chosen the CISG-member country’s law to apply in the contract. CISG might apply here: i. Under private international law, the parties’ choice of the CISG member country’s law might cause CISG to apply. (This would be under subsection (b) of the CISG applicability provision). ii. As an exception, if the CISG member country made an Article 95 election (chose to opt out) at the time of its adherence to the CISG convention, then CISG might not apply in this situation. (The authorities are divided about what happens here.) iii. As another exception, if the parties made clear in the contract’s choice of law provision that they wanted the substantive rules of the CISG member country to apply, & not the CISG substantive rules, then CISG won’t apply. CISG Substantive Rules Relevance of CISG Substantive Rules Substantive rules apply where CISG applies. CISG might apply to contracts that you negotiate and/or manage, so understanding the CISG substantive rules can be quite useful and relevant. Even where a national law applies, for any given CISG substantive rules, some countries might have the same or similar rules, so understanding the CISG substantive rules can be quite useful and relevant. Even where a national rule that applies is different, resolving the issues differently, the issues themselves are universal, so understanding the CISG substantive rules can be quite useful & relevant. Offer Essential elements of certainty A CISG offer must be a definite proposal indication an intention to be bound a) Indicating or describing the goods, b) Expressly or implicitly describing the quantity, and c) Expressly or implicitly specifying the price. Essential Terms This is consistent with the “essential terms” concept for a meeting of the minds. Goods description, quantity & price are indispensable essential terms for those places that make the distinction. What about other terms usually needed for a meeting of the minds? – Under CISG, the key element is the parties’ intention to be bound, not whether terms are “essential” or “inessential”. Eg. A buyer and seller are negotiating the sale of 10 machines for 5 million euros. The buyer says, “everything seems fine. I’ll make the machines.” IS THERE A CONTRACT? The 3 necessary CISG elements for definiteness are present: a) The goods are described b) The quantity is described c) The price is described But what about the delivery date, payment date, financial & logistical responsibility for shipment, risk of loss during shipment, consequences of defects in the machines, etc.? DOES THE BUYER INTEND TO BE BOUND? Here are the facts: they’re negotiating the sale of 10 machines for 5 million euros. You could argue both ways. What to conclude when you could argue both ways? Don’t commit to a position unless you have no choice. Allow for competing interpretations, and use if-then conditional reasoning. Open price, price lists & ads Silence on price is not fatal to the formation of a contract. If there’s an implicit description of the price, the court will confirm the price. The prudent businessperson will address price explicitly to avoid confusion. CISG on ads & price lists Traditional national rule on ads & price lists: conclusively an invitation to receive an offer. It’s an irrebuttable conclusion. However, under CISG RULE: Presumptively an invitation to receive an offer. The presumption, however, is rebuttable. A seller can render the presumption conclusive by indicating on ads, price sheets, & similar literature that they are NOT offers. This is a particular application of the general rule that CISG looks at an offering party’s intention to be bound. Revocation o Detrimental reliance o Mailbox rule Acceptance & the mailbox rule An offer is accepted as soon as the letter is posted. Oral promises Are oral contracts valid under CISG? YES Passage of risk of loss Seminar Activities You are the creator of an up and coming brand called, Jean’s Secret, where you design graphic tees, socks, and the latest design on the market, a mix between a ballet flat and sneakers, called the ‘Foundry.’ You are located in country, Renéemundo, a CISG contracting State. You decide to partner with an affiliate brand on the other side of the world in country, Ramona, in order to collaborate for materials needed for your ‘Foundry’ Shoe. They would be selling and delivering to you special ribbons that can be interchangeable on the shoe, including ribbons made from silk, polyester, and even a special one made from alligator skins! For a bulk order of 25,000 ribbons, you would be paying 10,000 USD. For some reason, the affiliate brand in Ramona is located in a small city on a port, and does not receive technological communication the best. You both do your best to communicate by post. While Jean’s Secret communicates the terms of 25,000 ribbons composing of silk, polyester, and alligator for 10,000 USD. The affiliate brand, in Ramona, has problems with their supplier of alligator skins in Renéemundo and so cannot conform to those conditions. They decide to post by ship their acceptance to send 15,000 ribbons of silk and polyester, and request 10,000 HKD. Their letter gets sent on a giant transporter ship called the SS Never Taken, but in the middle of the night, there is a blockage. Another ship has turned sideways, and all ships are being stuck. The letter remains on the ship, for a month. In the meantime, the affiliate brands send over the 15,000 ribbons and it reaches Jean’s Secret before the formal letter ever does. Jean’s Secret is upset that they did not receive the full 25,000 ribbons and is refusing to pay, particularly given that the currency exchange means they are paying a higher amount for less quantity. The affiliate brand is demanding the 10,000 HKD. Defend your positions. Let’s consider the facts. The affiliate brand was unable to communicate their inability to conform to the terms of contract and Jean’s Secret didn’t receive the affiliate brand’s acceptance letter with the new changed terms until they received the partial delivery.This formal acceptance letter which contained a request for 10,000 HKD, instead of USD and a change in the quantity of ribbons constitutes a material alteration of the offer, which, in CISG article 19; A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. Moreover, Jean’s Secret was not able to respond to the new terms, being the changed quantity, and the new currency which ultimately alters the price. Given the principles outlined in CISG Article 19, Jean's Secret had the right to accept, reject, or negotiate the counter-offer presented in the delayed letter. However, since Jean's Secret received only 15,000 ribbons, which did not conform to the original terms, and without a formal acknowledgment of the counter-offer, they are justified in refusing to pay the 10,000 HKD demanded by the affiliate brand. Therefore, there is a clear lack of meeting of the minds, meaning Jean’s Secret is not legally obligated to make the payment.
